G.H (Trinidad) Ltd v The Board of Inland Revenue
| Jurisdiction | Trinidad & Tobago |
| Judge | Koylass, C.,Burke, M.,Julumsingh, M. |
| Judgment Date | 14 March 1985 |
| Court | Tax Appeal Board (Trinidad and Tobago) |
| Docket Number | I 18-20/1980 |
| Date | 14 March 1985 |
Tax Appeal Board
Koylass, C.; Burke, M.; Julumsingh, M.
I 18-20/1980
S. Shivarattan and M Morgan for appellant.
Mrs. E. Bridgman-Volney for respondent.
(1) X Ltd. v. B.I.R. (1967–77) 1 T.T.T.C. 82.
(2) Ronell v. F.C.T. 8 ATR 411.
(3) Parkin v.Cattell 48 T.C. 462; [1971] TR 177.
(4) Erichsen v. Last 4 T.C. 422; (1881–82) 8 Q.B.D. 414.
(5) Smidth (EL.) Co. E. v. Greenwood (1922) 8 T.C. 196; [1922] A.C. 417; 38 T.L.R. 421.
(6) Maclaine & Co. v. Eccott, (1924) 10 T.C. 111; 132 LT 173.
(7) Wilcock v. Pinto & Co., 9 T.C. 111; [1925] 1 K.B. 30; 69 Sol. Jo. 178.
(8) Bennett v. Marshal 22 T.C. 73; [1938] 1 K.B. 591; [1938] 1 All E.R. 93.
(9) British Sugar Manufacturers v. Harris (1938) 21 T.C. 528; revsd. [1938] 2 K.B. 220; [1938] 1 All E.R. 149.
(10) Maker v. English Electric Co. Ltd. (1964) 41 T.C. 556; 43 ATC 119; [1964] TR 129.
(11) Imbert v. B.I.R. (1967-77) 1 T.T.T.C. 326.
(12) Aktiebolaget Volvo v. EC. T. 8 ATR 747.
(13) Clark v. Oceanic Contractors Inc. [1983] 2 A.C. 130; [1983] 2 W.L.R. 94; [1983] 1 All E.R. 133.
(14) Lever Finance Ltd. v. Westminster (City) London Borough Council [1971] Q.B. 222; [1970] 3 W.L.R. 732; [1970] 3 All E.R. 496.
(15) I.R.C. v. Sneath (1932) 17 T.C. 149; [1932] 2 K.B. 362; [1932] All E.R. Rep. 739.
(16) Bert Woon v. M.N.R (1950) C.T.C. 263.
(17) Maritime Electric Co. v. General Dairies, Ltd. [1937] A.C. 610; [1937] 1 All E.R. 748; 81 Sol. Jo. 156.
(18) Additional Commissioner of Income Tax, Madras v. P Nammalvar Naidu & Sons (1979) 116 I.T.R. 863.
Appeal against the disallowance of expenses in computing chargeable income.
Revenue Law - Assessment of Taxes — Whether the payments were of such a nature as to fall within the ambit of Section 23B(c) or (d) of the Income Tax Ordinance — Royalties — Whether the payments were in the nature of management charges or charges for the provision of personal services and technical and managerial skills under section 23B (d) of the Income Tax Ordinance — Whether the payments fell within the exception to section 23A(1)(b) of the Income Tax Ordinance as payments arising outside the jurisdiction to a non — resident company, not being engaged in trade or business in the jurisdiction where the evidence was that the payments were made in the jurisdiction and remitted overseas — Withholding tax levy — Consideration of Bert Woon v. M.N.R (1950) CTC 263 — Estoppel — Whether estoppel could preclude the disallowance of the payments as deductions under section 12(i) of the Income Tax Ordinance — Finding that the payments fell within Section 23 B (d) of the Income Tax Ordinance — Finding that the payments did not fall within the exception — Finding that estoppel could not operate so as to preclude the disallowance.
The respondent disallowed certain expenses in computing the appellant's chargeable income. These payments had been made by the appellant to C.A. under the terms of a service agreement with C.A., the parent company of the appellant. Under the agreement C.A. provided certain services, equipment and materials to the appellant. No withholding tax was paid on the remittances to C.A. as the respondent had advised the appellant that the payments were not subject to withholding tax.
The appellant appealed the additional assessment. The respondent contended that the payments were in the nature of royalties or management charges or charges for the provision of personal services and technical and managerial skills and were therefore subject to withholding tax; and since withholding tax had not been paid the deduction could not be allowed.
The appellant contended that even if the payments were taxable the respondent was estopped from contending the appellant should have paid withholding tax or alternatively, since it had acted in good faith on the representation of the respondent, it was a fit case for remission of the tax.
(Burke, dissenting) (i) royalties are amounts paid as consideration for the use of or the right to use information concerning industrial knowledge, experience or skill and management charges are amounts paid for the provision of personal services and technical and managerial skills, in this case, the services provided by C.A. under the agreement were management charges and subject to withholding tax;
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(ii) estoppels of all kinds are subject to one general rule: they cannot override the law; thus where a particular formality is required by statue, no estoppel will cure the defect; it is the duty of each party to obey the law; in this case, even operate so as to preclude the respondent from disallowing the payments as expenses and from raising an additional assessment, in accordance with the law;
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(iii) Section 74 of the Income Tax Ordinance gives the Chairman of the Board the power to remit or refund tax payable or paid if he is satisfied that it could be just and equitable to do so, in this case, as the appellant had taken the precaution to ascertain from the respondent whether or not the payments were subject to withholding tax, and had been wrongly advised that they were not, this is a tit case for the remission or refund of tax.
Appeal dismissed.
The issue in these appeals is whether the respondent had properly disallowed expenses of $217,016 and $52,379 in computing the chargeable income of the appellant for the years of income 1974 and 1975 respectively. Those amounts had been paid by the appellant to Servicios Hydrocarb C.A. of Venezuela (hereinafter referred to as “CA.”) during the years of income 1974 and 1975 under the terms of a service agreement dated 15th February, 1965 (hereinafter referred to as “the agreement”). In the original assessments to corporation tax, the expenses had been allowed as having been incurred wholly and exclusively in the production of the appellant's income under section 10(1) of the Income Tax Ordinance (hereinafter referred to as “the Ordinance”), which reads as follows:
- (1) In computing the income of any person for a year of income from any source specified in section 5 for the purpose of ascertaining the chargeable income of a person for that year, there shall be allowed to that person all outgoings and expenses wholly and exclusively incurred during the year of income by that person in the production of the income from that source.
Following a tax audit, the respondent raised additional assessments, having disallowed the expenses under section 12(1) of the Ordinance on the ground that they were payments under section 23B of the Ordinance and, therefore, subject to withholding tax under section 23A(i)(b) of the Ordinance. Sections 12(1), 23A(1) (b) and 23B read as follows:
- In ascertaining the chargeable income of any person for any year of income, no deduction shall be allowed from the income in respect of – (i) payments within the meaning of section 23B, unless the payer has accounted for and paid over withholding tax to the Board.
23A. (1) There shall be levied and paid income tax in this Ordinance referred to as withholding tax, at the rate set out in Part II of the Second Schedule –
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(b) on any payment made to any person not resident in Trinidad and Tobago or to any person on behalf of such non-resident person, and to every non-resident company (where such person or company is not engaged in trade or business in Trinidad and Tobago), so however that in the case of a payment arising outside Trinidad and Tobago to such a person or company withholding tax shall not be payable.
23B. In sections. 23. to 24 –
“payment” means a payment without any deductions whatsoever, other than a distribution, not being a payment to which section 53B applies with respect to –
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(a) interest, discounts, annuities or other annual or periodic sums;
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(b) rentals;
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(c) royalties;
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(d) management charges or charges for the provision of personal services and technical and managerial skills;
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(e) premiums (other than premiums paid to insurance companies and contributions to pension funds and schemes), commissions, fees and licences;
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(f) such other payment as may, from time to time be prescribed.
The grounds of appeal for the years of income 1974 and 1975 are the same, except for the amounts in dispute. Briefly, they are as follows:
The said sum…represents outgoings and expenses wholly and exclusively incurred during the year of income…by the appellant in the production of income and as such constitute an allowable deduction in the computation of the appellant's chargeable income for the year of income…
Moreover by reason of a letter dated the 4th day of August, 1967 from the respondent to the appellant the respondent is precluded from disallowing the said sum as a deductible expense.
The respondent's contentions are set out at page 6 of its statement of case as under –
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(a) that the said sums of $217,016.00 and $52,379.00 are payments within the meaning of that term under Section 23B(c) or (d) of the Income Tax Ordinance, made to a non-resident company Servicios Hydrocarb C.A., for the years of income 1974 and 1975 respectively, under the terms of a service agreement dated 15th day of February, 1965, that are subject to withholding tax under Section 23A(1)(b) of the said Ordinance.
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(b) that withholding tax not having been paid on the said sums, no deductions are allowable under Section.12(i) of the Income Tax Ordinance.
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(c) that the respondent is not precluded by letter dated 4th August 1967 from raising the said additional assessments upon the appellant.
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(d) that it appeared to the respondent that the appellant had been assessed at a lesser amount than that which ought to have been charged and accordingly assessed the appellant to additional tax under the provisions of Section 45 of the Income Tax Ordinance.
At the hearing, leave was granted to the appellant to argue the following...
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